Bloomberg News

European Stock Drop on Signs of Slowing Chinese Economy

May 18, 2012

European stocks fell for a fifth day, posting their biggest weekly selloff since September, amid signs of slowing growth in China and continued concern that Greece will have to leave the euro area.

Rio Tinto Group and Volkswagen AG (VOW) led mining companies and carmakers lower. Industrial goods companies retreated after Caterpillar Inc. reported slowing sales. London Stock Exchange Group Plc paced rising shares after reporting that second-half profit quadrupled.

The Stoxx Europe 600 Index (SXXP) slid 1.1 percent to 238.88 at the close in London. The equity benchmark slumped 5.2 percent this week and 7.2 percent so far this month. That would be the largest monthly drop since last August.

“On a medium-term view, there is certainly valuation support for equities, particularly relative to government bonds which have now hit quite remarkable levels,” said Bill Dinning, an investment strategist at Kames Capital in Edinburgh which oversees about $79 billion. “However, that doesn’t help much in terms of timing. Obviously, we are back in a situation where the euro area is having an existential crisis.”

The benchmark Stoxx 600 fell 1.1 percent yesterday as the European Central Bank temporarily halted lending to some Greek banks and speculation mounted that Moody’s Investors Service would downgrade Spanish lenders. The volume of shares changing hands on the gauge was 29 higher today than the average of the last 30 days, according to data compiled by Bloomberg.

European Stock Markets

National benchmark indexes retreated in 14 of the 17 western-European market that opened today. The U.K.’s FTSE 100 slid 1.3 percent, while Germany’s DAX slid 0.6 percent. France’s CAC 40 slipped 0.1 percent. Sweden’s OMX dropped 3.1 percent. The gauge reopened after a public holiday yesterday. Denmark was closed for a public holiday today.

Almost $4 trillion has been wiped from global equity markets in May amid mounting concern Greece will have to leave the euro currency union. The country’s credit rating was reduced one level by Fitch Ratings late yesterday amid concern it will not muster the political support needed to remain a member of the 17-nation euro area.

Moody’s lowered the debt ratings of 16 Spanish banks after the close of U.S. trading yesterday, citing mounting loan losses, the country’s recession, restricted access to funds and the reduced ability of the government to support lenders as its own creditworthiness diminishes.

The rating company cut nine lenders by three notches, including Banco Santander SA (SAN) and Banco Bilbao Vizcaya Argentaria SA (BBVA), and kept seven on review for further reductions. The move follows Moody’s May 14 downgrade of 26 Italian banks and its Feb. 13 cut of Spain’s sovereign-debt rating.

Santander, BBVA Rebound

Santander and BBVA climbed 3 percent to 4.58 euros and 3.7 percent to 4.94 euros, as both banks rebounded from a five-day retreat. Bankia SA (BKIA) surged 23 percent to 1.76 euros for its first gain in 11 days and the biggest rally on the Stoxx 600.

The country’s lenders have called for a ban on short selling their shares, according to a report in Cinco Dias. The newspaper cited unidentified sources at the banks.

A gauge of European banks decreased 1.1 percent today, extending its 8.5 percent tumble over the previous five days.

Rio Tinto, the world’s third-biggest mining company, retreated 2.4 percent to 2,788 pence. Vedanta Resources Plc (VED) lost 2.7 percent to 958.5 pence and Xstrata Plc dropped 4.3 percent to 914.7 pence.

A gauge of mining companies retreated after data showed house prices fell in a record number of Chinese cities last month and car dealers posted inventory levels that indicated deeper price cuts.

Volkswagen, Daimler Drop

European carmakers posted the biggest decline of the 19 industries in the Stoxx 600. Volkswagen dropped 2 percent to 128.20 euros, Porsche SE slid 2.4 percent to 39.93 euros and Bayerische Motoren Werke AG (BMW) lost 2.3 percent to 61.31 euros.

A gauge of industrial goods companies contributed the most to the Stoxx 600’s decline after Caterpillar, the world’s largest maker of construction and mining equipment, reported slowing growth in sales.

Caterpillar’s global machinery sales rose 12 percent in the three months through April. That compared with an 18 percent increase through March and a 21 percent advance through February. The stock lost 4.4 percent in New York yesterday.

Volvo AB (VOLVB) sank 4.6 percent to 78.45 kronor, Sandvik AB (SAND), the world’s biggest maker of metal-cutting tools, dropped 2.5 percent to 90.30 kronor and Atlas Copco AB (ATCOA), the world’s largest maker of air compressors, slipped 3.2 percent to 140.60 kronor.

LSE (LSE) jumped 2.9 percent to 992 pence after Europe’s oldest independent bourse posted profit for the six months to the end of March that surged to 405.9 million pounds ($641 million), boosted by money earned from deposits at its Italian central counterparty.

To contact the reporter on this story: Sarah Jones in London at sjones35@bloomberg.net

To contact the editor responsible for this story: Andrew Rummer at arummer@bloomberg.net


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